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How to invest in dividend growth stocks in 5 simple steps

 What are dividend growth stocks?

A dividend growth stock has the following characteristics:

  • it offers a dividend that compounds over 5% p.a. in the previous 5 years,
  • the stock has a steady growth,
  • the company pays the dividend from free cashflow (payout rationlower than 60% ),
  • the company has to have a steady dividend history of more than 5 years,
  • the company's capitalisation must be high enought to survive a major crisis,
  • the company's position on the market must be secure enough to push on any increase in price of service or goods onto the customer,
  • the company must have a strong mote that will make investors hodle the stock for many years and make them reinvest the money they got from any dividend.
How to start investing in dividend growth stocks in 5 simple steps?

STEP 1

Find a stock that is at a major support after a crash ( start with the 21 EMA on the weekly chart or that is at a 52 week low). The stock has to have a proven record for paying dividends that rise every year. The best companies are dividend aristocrats ( paying and increasing dividends for >20 years) or dividend kings ( paying and increasing dividends for >50 years).

STEP 2

Set a buy order and DCA into the company little by little bacuese the market mostly overvalues or undervalues the asset. When a stock crashes be prepared that investors will panik and a small crash might become a huge crash. As an example META in August 2021 used to be valued way over $370 and just few months later it crashed like a crypto currency 78% to about $80 in October 2022.

STEP 3

Monitor dividend payments and reinvest them back to the stock that paid the dividend.

STEP 4

At major crashes buy more.

STEP 5

Find anothe stock that has the same parameters as a dividend growth stock but pays a dividend on a different month. Your main goal is to have regular cashflow whole year round so diversify.

NOTE

Any company might cut or halt dividend payment! This is why you must diversify your protfolio if you want to live off the dividend.

If you have chosen a company that pays 1% p.a. dividend but has a 10% divident growth rate then expect that in 10 years the dividen will double and in 20 years the dividend will x4 and in 30 years the dividend will x8!

The most important is the dividend growth not the curret yeald and also the price of the stock must go up.

If the company stops paying dividend but does a stock buy back instead then if you are not retired yet you might consider holding the company as you will be rewarded for keeping the company tax free. Remember when there are 10 stocks and you are holding 1, when the company buys back 2 shairs own not 10% but 12.5% of the company tax free. Any dividend payment is always taxed. Some companies do both dividend payments and stock buybacks.

Check out my dividend growth protfolio. Sign up with eTorro and click copy trade to passively invest togeather with me in over 60 different stocks. I will manage the portfolio for you.



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